As the quarter concluded, major headlines, including those concerning financial markets, focused on the Middle East conflict. On February 28th, President Trump launched Operation Epic Fury, a joint U.S.-Israel military incursion targeting Iranian nuclear and missile infrastructure as well as key officials. Iran’s retaliation has inflicted damage in Israel and to U.S. bases and equipment in the region, and the regime is enforcing a restriction on maritime traffic passing through the Strait of Hormuz, a crucial global choke point for seaborne crude oil trade.
In these early weeks, opposing sides appear entrenched, and a path to resolution remains undecided. It is too soon to contemplate the humanitarian, geopolitical, and economic costs of a prolonged conflict, but we remain hopeful that the U.S. administration is claiming diplomatic progress in peace negotiations. Inevitably, a cautiousness has entered the equity markets in a retreat from recent all-time highs, and Energy gains have dwarfed the performance of all other sectors this quarter.
Following a meaningful bounce in equities on the last day of March, the S&P 500 ended the first quarter of 2026 at 6,529, reflecting a negative return of -4.33% for the year to date. The Dow Jones Industrial Average (DJIA) ended March at 46,342 for a more protected, but still negative, first-quarter return of -3.19%. The swing in sentiment that has recently favored value strategies over growth counterparts is responsible, in part, for the Dow faring better in a relative sense. Both the S&P 500 and DJIA are still firmly in positive territory over the past 12 months, with the indices returning 17.80% and 12.23%, respectively.
In the second half of March, the S&P 500 experienced its first 5% pullback in five months. While the Middle East conflict is the primary, although not sole, source of volatility, three or four retracements of this size each year are typical. However, the tech-heavy Nasdaq composite extended a slump that sent it into correction territory, and in the last full trading week of the quarter, the S&P 500 closed lower for a fifth straight week, its longest weekly losing streak in nearly four years.
A weakening in mega-cap Technology and AI names has also had an outsized effect, with U.S. Large Cap Growth returning -10.6% through the last Friday in March, in contrast to a +1.5% return for U.S. Large Cap Value. International stocks have also exhibited strength over the first three months of this year, with the strongest equity performances found in Emerging Markets.
The sector rotation has also been stark. While Information Technology and Communications Services led the way in 2025, they find themselves in markedly negative territory so far in 2026. In a sharp reversal of positions, the blowout sector, by a huge margin, has been Energy, returning 38.1% in the first quarter, spurred by supply shock fears. Rounding out the top three are Materials and Utilities with 10.5% and 7.7% year-to-date returns, respectively. Through the end of March, Financials experienced the steepest drawdown (-9.3%), with Consumer Cyclical and Information Technology following at (-9.1%) and (-9.0%), respectively.
At a corporate level, valuations have shifted in a more conservative manner, as equity markets on aggregate have trended sideways or downward while earnings continue to rise. Investment—particularly in AI—is healthy or expanding, a factor which should favor industrials, on top of increased defense spending. The “Magnificent Seven” tech giants are projected to spend up to a combined $680 billion on capital expenditure in 2026, allocating a significant amount to AI infrastructure.
Oil is driving much of the narrative presently, alongside disruption in other products essential to the global economy, including Liquefied Natural Gas (LNG), fertilizer, and helium. WTI Crude is closing out March at $103/barrel, up 78% since the start of the year. With the continued weaponization of the Strait of Hormuz by Iran, short-term disruption risks could quickly morph into a more prolonged crisis.
This narrow passage, through which an average of 20 million barrels per day of crude oil and oil products were shipped in 2025, is a critical oil transit chokepoint. Prior to the conflict, around 25% of the world’s seaborne oil trade transited the Strait, with about 80% destined for Asia, with China, India, and Japan being the main importers. Close to 20% of global LNG trade also transited the route.
Iran currently imposes strict restrictions on passage, allowing only a select few ‘friendly’ or negotiated foreign vessels, predominantly from India, Pakistan, China, Russia, and Iraq. China, the second-largest world economy behind America, is actively urging an immediate ceasefire and diplomatic solutions to de-escalate the conflict. Beijing argues that military action risks regional stability and global energy security.
From a U.S. perspective, given the size, terrain, and population of Iran, the force necessary could escalate to be larger than the 2003 Iraq incursion. The U.S.-Israeli decapitation strike on February 28th eliminated 86-year-old Ayatollah Khamenei, whom his son replaced, and galvanized Iranian hardliners. Assassinations also killed Iran’s chief security and intelligence officers. The Trump administration is preparing to send Congress an Iran defense supplemental request of over $200 billion—an amount that represents about one-fifth of the existing annual defense budget.
The national average price of a gallon of regular unleaded gasoline crossed the psychological $4 mark at the end of March, reaching its highest level since August 2022. But the U.S. economy’s status as a net exporter of oil at least provides a dampening effect against higher energy prices. Gasoline now makes up just 1.7% of the average household’s spending, with the percentage roughly halved from 15 years ago.
Against the unfolding uncertainty, the Federal Open Market Committee (FOMC) maintained the benchmark interest rate in the 3.5% to 3.75% range at their March 17th-18th meeting, opting for a continued “wait-and-see” pause, amid persistent inflation and a cooling labor market. The last quarter-point cut was in December 2025, and officials are only projecting one 0.25% rate cut for this year.
With inflation running above its 2% target for five consecutive years, the Fed is sticking to its data-driven approach. As inflation risks reprice the bond market, treasury yields are climbing, with the 2-year Note yield, which is sensitive to policy, now at 3.80%, 43 basis points higher than when attacks on Iran were launched.
Jerome Powell, whose term as Chairman is set to end in May, noted that the U.S. economy is doing “pretty well” and that it remains “too soon” to fully assess the economic effects of the conflict and potential complications for inflation paths. Growth outlook edged up, with the Fed’s 2026 GDP forecast raised from 2.3% to 2.4%. The annual inflation rate in the U.S. held steady at 2.4% in February, unchanged from January, and in line with expectations. While it remains at its lowest level since May 2025, the figure doesn’t reflect the recent energy shock.
Real GDP growth dipped sharply to a 1.4% annualized pace in the fourth quarter of 2025, meaningfully below expectations and down from 4.4% in the third quarter last year. However, the decline was largely driven by a 5.1% plunge in government spending related to the shutdown, while private investment and consumer spending growth remained solid.
In line with the Fed, four other central banks in the G7 opted to leave policy rates unchanged around the same time. Iran-related actions affecting energy markets were cited as contributing to a cautious inflation outlook. In the UK, inflation is above target while the unemployment rate, at 5.2%, is the highest since 2021. The Bank of Canada is also weighing elevated unemployment of 6.7%, although inflation is below target.
In the Eurozone, unemployment is at a record low of 6.1%, with inflation slightly below target, although its two biggest economies—Germany and France—are facing more severe economic challenges, exacerbated by energy supply concerns. Japan has a near 100% dependence on imported oil and gas, uniquely exposing it to the Persian Gulf disruptions, but it also has the lowest unemployment rate, 2.7%, among G7 nations and inflation is below target.
Events in the Middle East has largely overshadowed a plethora of other significant news relevant to markets and economics. At the beginning of January, the U.S. executed “Operation Absolute Resolve”, a special forces operation aimed at addressing drug trafficking and staving off a political crisis in Venezuela. The U.S. captured President Nicolas Maduro and his wife at home. They then transported them to New York to face charges. American sanctions on Venezuelan oil recently eased to boost world supply, aiding Venezuela’s oil-dependent economy and encouraging outside private investment, including from U.S. energy giants.
Relatedly, in Cuba, an energy shortage and economic crisis have unfolded amid a de facto U.S. blockade that halted oil and funding from Cuba’s close ally Venezuela in January. Since then, only one tanker has reached the island: a Russian vessel that reached Havana on March 31st. President Trump has labeled Cuba an “unusual and extraordinary threat” to U.S. security and has threatened a “takeover” of the island.
In politics, a standoff over immigration enforcement has led to long lines at major American airports as airport security workers went unpaid. In the last week of March, while the Senate passed legislation to fund most of the Department of Homeland Security (DHS) through the end of the fiscal year, it did not include Border Patrol and Immigration and Customs Enforcement, a sticking point for Democrats. As an emergency measure, President Trump just issued an executive order allowing Transportation Security Administration (TSA) employees to receive back pay.
The U.S. Customs Agency is saying it is making progress in refunding some $166 billion in tariff collections that were deemed illegal in February by the U.S. Supreme Court. The landmark ruling struck a blow against the Republican president, and Donald Trump reacted scathingly, vowing to pursue other measures. Over 330,000 importers paid the International Emergency Economic Powers Act (IEEPA) tariffs on 53 million shipments, according to court documents.
While we navigate this time of heightened uncertainty with geopolitical risks, periods of elevated volatility for investors with a long-term outlook are to be expected. Underneath, the U.S. economy and markets have exhibited resilience, and this near-term pullback has not derailed the very positive trends of recent years. Earnings revisions to the upside, coupled with price drawdowns in several sectors, have also brought valuations closer to normalized levels.
Here at Wealth Oklahoma, our focus remains on a fundamentals-based, bottom-up approach in evaluating investment opportunities. While we are, of course, subject to market variances, our portfolios can prove to be more defensive when investor risk appetite diminishes and value strategies are favored. This broadening of the market is evidenced by the outperformance of the S&P 500 Equal Weighted Index over the S&P 500 this quarter; a development we welcome. We hope you enjoy all the beauties of spring, and we thank you, as always, for the continued trust you place in us as your financial steward.
The S&P 500 is an unmanaged index of 500 widely held companies and over 80% of the U.S. equities market. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow”, is an index representing 30 companies maintained and reviewed by the editors of the Wall Street Journal. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of the investment adviser representatives of Wealth Oklahoma and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Investing involves risk and you can lose principal. There is no assurance any strategy will be successful. There is no guarantee that any forecasts made will come to pass. Past performance may not be indicative of future results. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Dividends are not guaranteed and must be authorized by the company’s board of directors.
